Small Business Aid Legislation Clears Key Hurdle

A long-delayed Congressional proposal to aid small businesses finally sidestepped the heated partisan battle standing as an obstacle and, to the relief of Democrats who pushed it, could be on its way to a presidential signing well in advance of November's critical general elections.

Despite a lengthy Republican-led effort to block its advance, the Senate voted 61-37 to end debate on the Small Business Jobs and Credit Act of 2010 (H.R. 5297), which paves the way for a full Senate vote on the legislation potentially by week's end. Needing 60 votes to end debate, a pair of Republicansâ€”Sens. George Voinovich (OH) and George LeMieux (FL)â€”broke ranks on September 14 to push the proposal through to the pending floor vote. "Two Republican Senators decided to put party politics aside because this bill is the right thing to do...We took a stand for small businesses in America this morning, and we are on course to finish this legislation soon and get support into the hands of small businesses immediately," said Senate Small Business and Entrepreneurship Committee Chair Mary Landrieu (D-LA).

Should it pass the Senate, which is likely given the need for just a simple majority, a conference committee including members of the House will craft a final version of the legislation based on the two sides' existing proposals. The House passed its package along party lines, 241-182, on June 17. The reconciled version almost surely would be signed by President Barack Obama in rapid fashion. H.R. 5297 does not include a plan unveiled last week by Obama to allow small businesses to write off 100% of their new investment in plants and equipment through 2011.

The purported cornerstones of the bill include an array of tax cuts and the establishment of a $30 billion lending fund which would provide capital to small, viable community banks to increase lending to smaller firms. The fund is designed to be performance-based and would incentivize those lenders that extend new credit by decreasing the dividend rate banks pay as they increase lending. The legislation was also designed to be deficit-neutral and potentially reduce the tax gap.

Landrieu chided Republicans, who argued against the measure as government intrusion on free markets and another costly measure on top of previous efforts, for attempts to scuttle the small business aid bill. Following the Sept. 14 vote to end debate, Landrieu targeted Sen. Mike Johanns (R-NE) for an amendment she characterized as a "joke" and a "sabotage" attempt. Johanns pushed for the removal of a provision that would force businesses that pay any vendor more than $600 per year to file a 1099 tax form as well as the elimination of a health care prevention fund and reduction of penalties for businesses that do not buy mandated insurance. The measure, which ebbed with the previous vitriolic debates over health care reform, failed.

Prior to this week, all 41 GOP Senators voted against the proposed bill, arguing that while they theoretically support its myriad tax cuts for small businesses, they objected to strict limits placed on their ability to offer amendments. Senate Majority Leader Harry Reid (D-NV) had reportedly only extended the minority party the chance to offer three amendments to the bill, and Republicans balked, calling the move unfair. Top Democrats alleged the arguments were merely a rationalization for a GOP effort to submarine any significant, majority-led legislative effort as a ploy to garner more votes in tight November election races.

Be sure to check NACM's Credit Real Time blog for more updates in the coming days as the small business bill continues to move through Congress.

Brian Shappell, NACM staff writer

It Was a Dark and Stormy Night

It's time once again to submit your anecdotal credit stories for NACM's Credit Words Contest. Earn cash and Roadmap points if you're a winner and Roadmap points if we publish your story. Tell us about the biggest success, proudest moment or most humorous situation experienced during your career. It's not a perfect world either. You can tell us about an unexpected turn in what should've been an easy task, or even a story of failure that will serve to help other credit professionals in the future. The possibilities are endless!

Submission deadline is November 1, 2010. Read the contest rules and get additional details in the September/October issue of Business Credit, or by clicking here.

Some Credit Card Companies Praying on Small Businesses Post-CARD Act

A consumer and business-information site and at least one outspoken Capitol Hill lawmaker have taken to sounding the warning bells that some credit card companies have found new ways to use deceptive and predatory practices even after legislation designed to curb such behavior was written into law.

A study unveiled this month by BillShrink/billshrink.com found that small business owners faced credit card interest rate increases upwards of 30% since January despite improving credit fitness among the majority of U.S.-based small and medium businesses. The average increase reported in the study, which tracked rates of about 2,300 small businesses, was 16%. A significant part of the shift was tied to the exclusion of safeguard provisions in the Credit CARD Act that would have protected small business customers from credit card policies federal lawmakers deemed unfair.

"We predicted earlier this year that small businesses would be subject to rate increases as the banks try to make up for the lost consumer revenue resulting from the CARD Act," said BillShrink CEO Schwark Satyavolu. "Since small businesses aren't protected [like consumers now are], they appear to be an easier target for card rate hikes. However, our study shows that despite the lack of legislation protection and a poor economy, American small businesses are pulling through to keep their debt in check while maintaining good-to-excellent credit health."

The alleged abuse from card issuers has been a pet issue of Sen. Charles Schumer (D-NY). Schumer has long blasted that businesses, especially smaller-sized ones, were not extended the protections afforded consumers as a result of the CARD Act. In recent weeks, Schumer has taken the credit card companies to task for what he characterized as a new tactic: driving consumers into signing up for corporate cards that are not subject to CARD Act protections.

"Credit card companies seem to be purposely hawking corporate cards to consumers who don't own a business and may even be retired," said Schumer. "This is more than deceptive marketingâ€”it is a dirty trick...This is the latest, most brazen attempt yet by the credit card industry to get around the law."

In a Sept. 1 letter sent to Federal Reserve Chairman Ben Bernanke, Schumer penned that the circulation of business credit cards increased by 256%, with many of those new business credit lines going to non-business-related consumers, since 2010's first quarter. He did note that a number of credible banks have proposed to extend the same consumer protections to business credit card holders and went out of his way to hold up Bank of America as a standard-bearer. Granted, Schumer was one of two Democrats receiving the largest dollar amount of campaign contributions this year from the nation's six largest banks including, you guessed it, Bank of America.

Brian Shappell, NACM staff writer

Credit Reports

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Some Good News for a Changeâ€”Should We Get Excited?

The economic data released last week was better than most expected. Results included a fourth straight month in which new claims for unemployment declined and a much better trade position. There are reasons to get somewhat excited about the data. There is a growing sense the economy finally has started to settle into a sustainable pattern, featuring slow growth and a faster job recovery than seen in the 1991 and 2001 recessions.

The number of first-time claims for unemployment was down far more than anyone had expected, marking the fourth straight week of decline. Claims dropped by 27,000 to 451,000, the lowest in two months. The most optimistic forecasts predict the decline at around 470,000.

The last two recessions were far shallower than this one but were both followed by "jobless recoveries." It took more than four years to gain jobs after the 1991 slowdown and three years after the 2001 retreat. In fact, the entire last decade was a slow one for job growthâ€”not even the four boom years brought job growth back to levels that had been "normal" since the 1950s. The gains in this slow recovery period have been far from impressive but, if the latest trend holds, it appears that the rebound is occurring faster than in either of the previous recoveries. The primary problem is that this recession dug a much deeper hole than its predecessors, and it is going to take truly spectacular job expansion to get back to respectable employment numbers.

It is this need to get some truly rapid growth that makes the latest trade numbers important. Many expected that the U.S. trade deficit would worsen in the last month based on the assumption that the U.S. was still snapping up lots of imports and its prime export targets were still weak. The surprise is that the trade deficit shrank by 14% based on an increase of 1.8% in exports alongside a 2.1% reduction in imports.

The United States was far more aggressive in selling high-value capital goods overseas than in past months. This has always been the core strength of the U.S. export sector and is the reason manufacturing still claims between 35% and 45% of the world's value for that section. The nation sells little in the way of consumer goods to the rest of the world but is adept at selling the machines that produce the consumer goods other countries sell back to us. The nation also shows strength at selling commodities to the rest of the world and that will help through the rest of the year as U.S. farmers start shipping expected bumper crops to nations suffering from the loss of their own output.

On the import side of the equation, the U.S. consumer has helped trade deficit numbers by spending less at the retailer. This means less importing from places like China, India and Asia. The bad news is that the retailers are losing ground and so are businesses that facilitate the shipment of these consumer goods to the U.S. market. Transportation, distribution, wholesaling, warehousing and many other sectors are weakened when the level of imports starts to decline. The other import category in decline is oil, as the slow economy has reduced demand. That reduced demand means the price of gasoline remains lower than anyone anticipated.

Source: Armada Corporate Intelligence

Join Chris Kuehl, Ph.D., managing director of Armada Corporate Intelligence and NACM economic advisor, for the September 20 NACM teleconference "Economic Update" where he will address these issues and more. For more information and to register for this teleconference, click here.

Share Your Affiliate/Member News

Share your new and exciting information with the rest of your fellow association members. Submission deadline for the November/December issue of Business Credit is Friday, September 24.

Email submissions to bcm@nacm.org. Looking forward to hearing from you!

China Welcoming, Warning United States on Trade, Currency

In one breath, Chinese officials seem to be telling the United States that it would welcome more American products into the nation, but in another, an economic expert at a state-run think tank warns the United States would be making a serious mistake with any move toward a "trade war" over currency valuation and the rising trade divide between the powerhouse nations. Either way, trade relations between the nations appear increasingly strained, perhaps in part from increased political posturing in the national election run-up and the newfound harder stance from U.S. Treasury Department officials on China's currency flap efforts.

National Development and Reform Commission Vice-Chairman Zhang Xiaoquiang said this week that China would welcome an increase in imports from the United States. The news followed a recently renewed anger among Washington policy-makers of the undervalued yuan giving the Chinese a decisive trade advantage and reports that the nation's trade surplus hit its second highest level on record in August.

However, as Conference Board Economist Ken Goldstein pointed out, Chinese officials never acknowledged if there is actual consumer demand there for the products that would be allowed in at a greater rate or if they'd actually be permitted by the government to purchase them. Goldstein chalked up Xiaoquiang's attempt to extend the olive branch as yet another example of Chinese officials "blowing smoke." Moreover, Xiaobing Shuai, senior economist for Chmura Economics & Analytics, questioned whether or not the eased importing would affect many sectors of U.S. production in the first place.

"China has traditionally used its purchasing power to make a statementâ€”but those are mostly one-time deals and only benefit a small set of industries, such as airplanes or advanced machineries," said Shuai. "They need to purchase those products anyway, and they normally shift between U.S. and Europe depending on the political environment. I wouldn't count on it to accelerating the recovery."

Meanwhile, Chinese policy expert Ding Yifan, of China's Development Research Center, warned that China could initiate a selloff of its U.S. Treasury holdings, causing a surge in domestic interest rates, as the result of a American-initiated "trade war." Yifan admitted the move would be drastic, but increasingly likely if U.S. lawmakers make a hard push to enact sanctions against the Chinese government over the yuan. Though such a move by the Chinese would have a significant impact, most believe the predictions and warnings are more likely a thinly veiled economic bluff.

"I think it is just rhetoric [and] posturing," said Shuai of the expert's prediction/warning. "I actually think China relies on U.S. consumer markets more than they admit. If the U.S. started to add taxes on China's imported goods, millions will lose jobs in China. Eventually some compromise will be made."

Brian Shappell, NACM staff writer

MLBS Offers Complete Lien and Bond Services and More

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Commercial Mortgage Delinquency Levels Vary by Issuer, Investor

A quarterly Mortgage Bankers Association (MBA) study finds that commercial/multifamily real estate delinquency rates were mixed during 2010's second quarter based largely on the industry being tracked. While reports of delinquency rates at banks are stabilizing, albeit at high levels, they're still shockingly bloated for those investing in commercial mortgage back securities (CMBS).

MBA noted the 30-day CMBS delinquency rate tracked at 8.22% for the quarter in its Commercial/Multifamily Delinquency Report. It is the highest rate found since MBA launched the study in 1997. The previous records, set in each of the last two quarters, were 5.7% (4Q2009) and 6.83% (1Q2010).

Also remaining high at 4.26%, was the 90-day delinquency rate for the banks and thrifts category. However, MBA spins the latter as somewhat positive news because the rate did not grow since last quarter. The association did not go out of its way to mention that the rate tied for the highest on record, set in 2010's first-quarter. Still, MBA official Jamie Woodwell, vice president of commercial real estate research, intimated that the commercial real estate sector still has a long way to go despite a recent smattering of optimism in some forecasts for the long-troubled sector:

"The delinquency rate on banks' commercial and multifamily mortgages appears to have reached a plateau, and the delinquency rate for loans in CMBS continued to climb during the period. Performance across all investor groups will continue to depend on economic growth and its ability to generate demand for commercial real estate space."

Brian Shappell, NACM staff writer

Things You Can't Do

Recently, there was an article on Yahoo! Finance about the things a prospective employer cannot ask during an interview. These collections of laws are very similar to the rules outlined in the Equal Credit Opportunity Act (ECOA) for extending, modifying and terminating credit. As a credit professional, now is a great time to refresh your memory on both sets of laws if your company is ramping up to add staff and expand business. As a consumer, it's not a bad idea either!

The U.S. Supreme Court should reverse a lower court ruling and determine that sales and use tax exemptions are discriminatory taxes and are not immune from being challenged under federal law, a Tax Foundation legal brief argues.

The Supreme Court will hear arguments on November 10 in CSX Transportation Inc. v. Alabama Department of Revenue, in which CSX argues that the state's tax system is discriminatory because of sales and use tax exemptions for competitors but not CSX.

The Railroad Revitalization and Regulatory Reform Act, known as the 4-R Act, prohibits discriminatory state tax policies against railroads, but the Supreme Court subsequently ruled that some property tax exemptions are immune from challenge under the law. Relying on that immunity concept, a lower court incorrectly determined that sales tax exemptions may not be challenged either.

"A Supreme Court decision to uphold the lower court's reasoning would result in economic distortion and effectively give state governments all the discriminatory authority that they had exercised so enthusiastically before the 4-R Act was made law to rein them in," said Tax Foundation Tax Counsel and Director of State Projects Joseph Henchman, who authored a report summarizing the Tax Foundation's friend-of-the-court brief. "In particular, states could convert an impermissible discriminatory tax with higher rates on competitors into a permissible discriminatory tax with exemptions for competitors that achieve the same result."

Even though the 4-R Act does not explicitly refer to sales and use tax exemptions as a type of discriminatory tax policy subject to challenge, subsection (b)(4) of the act prohibits "another tax that discriminates against a rail carrier." This "catch-all" provision indicates that Congress did not intend the 4-R Act to be limited to property tax rates and assessments, but that it may also apply to other taxes and their exemptions. These, in effect, are part and parcel of the taxes themselves, the brief argues.

"The problems created by discriminatory state property taxes are no different from those created by discriminatory non-property taxes, namely that rail carriers will be forced to pay more than their non-rail competitors, putting them at a comparative disadvantage," Henchman said. "The incentives for states to discriminate against interstate rail carriers and favor intrastate competitorsâ€”promoting the local economy over the health of the nation's economyâ€”haven't changed since the 4-R Act was passed in 1976. To maintain the careful balance of states' taxing power against business' right to compete fairly in the national market, the Supreme Court should reverse the lower court's decision."

Source: The Tax Foundation

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CFOs Reveal Fourth-quarter Hiring Expectations

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Hiring in accounting and finance is expected to increase slightly in the fourth quarter, according to the Robert Half Financial Hiring Index. Eight percent of chief financial officers (CFOs) interviewed said they plan to hire full-time accounting and finance employees during the fourth quarter, while 7% expect staff reductions. The net 1% increase in hiring activity is the first net increase since the first quarter of 2009. Most CFOs, 84%, envision no changes to their personnel levels.

Business confidence is strong among the group, the survey notes. A significant majority (86%) of executives interviewed are at least somewhat optimistic about the outlook for their businesses, including 39% who are very confident.

The Robert Half Financial Hiring Index is based on telephone interviews with more than 1,400 CFOs across the United States. It was conducted by an independent research firm and developed by Robert Half International, the world's first and largest staffing services firm specializing in accounting and finance. Robert Half has been tracking financial hiring activity in the United States since 1992.

"While employers remain cautious about adding staff, more firms also are concerned they could miss out on business opportunities by not having adequate human resources in place," said Max Messmer, chairman and CEO of Robert Half International. "Rising customer demands are placing added pressure on companies that made deep personnel cuts in recent years. Some businesses not in a position to hire full time are addressing the gap by bringing in professionals on a temporary or project basis."

Accounting and Finance Hiring: By RegionThe West South Central states (Arkansas, Louisiana, Oklahoma, Texas) states are projected to see the most active hiring in the fourth quarter, with a net 6% percent of CFOs in the region expecting to add full-time accounting and finance employees. "Retail, manufacturing, health care, and oil and gas services companies in the region are rebuilding their teams," Messmer said. "Demand is particularly strong for operational and staff-level accounting roles."

The Pacific states (Alaska, California, Hawaii, Oregon, Washington) also are expected to see above-average hiring activity. A net 5% of CFOs in the region expect to add personnel.

Accounting and Finance Hiring: By IndustryCFOs in both the manufacturing and wholesale sectors are optimistic regarding hiring plans for the fourth quarter, with a net 4% of executives in each industry forecasting increases in personnel levels. Thirteen percent of manufacturing respondents anticipate expanding their teams and 9% expect staff reductions. In the wholesale sector, 9% of CFOs surveyed plan staff additions, while 5% said they will decrease headcount.